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ASCM Insights

Episode 31: Simplifying Digital Transformation

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Bob: Welcome to The Rebound, where we'll explore the issues facing supply chain managers as our industry gets back up and running in a post COVID world. This podcast is hosted by Abe Ashkenazi, CEO of the Association for Supply Chain Management, and Bob Trebilcock, editorial director of Supply Chain Management Review. Remember that Abe and Bob, welcome your comments. Now to today's episode. Welcome to today's episode of The Rebound, simplifying digital transformation, new research, and new tools for building digital capabilities. I'm Bob Trebilcock.

Abe: I'm Abe Ashkenazi.

Bob: Joining us today is Peter Bolstorff. Peter is the executive vice president for corporate development at the Association for Supply Chain Management. Peter oversees ASCMS corporate solutions, including talent development, transformation, and sustainability. In addition, he's the author of Supply Chain Excellence, a handbook for dramatic improvement using the SCOR model. Peter welcome.

Peter: Thanks Bob, thanks, Abe. Looking forward to the discussion.

Bob: We're looking forward to it as well. Last December, Abe and I had Chris Richard, a principal in the supply chain and network operations practice at Deloitte consulting as a guest on The Rebound. We in supply chain love acronyms. Chris was here to talk about two, DSN and DCM. The first stands for Digital Supply Network, and the second is a reference to a Digital Capabilities Model for Digital Supply Networks. DCM is the new reference model from ASCM to complement and enhance the SCOR model that so many organizations already use to improve their supply chains. The idea is that new digital technologies and capabilities call for a new strategy, what Richard and his colleagues at Deloitte are calling a digital supply network or DSN. It's a different way to think of the SCOR model that they serve the industry so well.

Peter's here to continue that conversation. That's because there's a little bit of news and that's that the SCOR digital standard, as well as DCM are now available to the public. You gain access by creating a free online ASCM account on ascm.org. At the end of this, we've included a link in the show notes for the episode. This seemed like an ideal time to revisit the topic with Peter. Peter, I want to start with what sounds like a simple question, but one that I think means something different to every organization, what's digital transformation and how are companies operationalizing it? I lied, it's two questions.

Peter Bolstroff: Let me take this in pieces. I look after our 200 corporate clients that are part of the ASCM ecosystem. We get a perspective every day to see supply chain excellent companies doing the things that they do. There are two particular research pieces that I'm going to use as we go through this. One is a research piece we did with The EIU on resilience. The other was project that we worked on with TCU on recessionary recovery and relationship with supply chain experts.

I guess the key point from both of those, Bob, is that we put people into two buckets, leaders, it's supply chain, and laggers. One of the things that we found is there's this emerging group of companies who have broken up and smelled the pandemic and they're moving as fast as they can out of the lagger group into that low-end leader group. Those are the two perspectives that I'm going to have.

To answer your questions directly, I think transformation, if we go back and we turn back the hands of time a bit, if you recall, there was this business process reengineering that happened in the '90s and in the early 2000s. That whole idea was how do we rapidly improve processes, technologies, and people? I think digital transformation is the digital version of BPR.

I think the thing though that we want to keep in mind is the difference is it's a tighter weave of technology and process. Whereas 50, 20 years ago we could engineer a process and move the needle on performance. I think now with innovation and all the capabilities that are being produced by technology providers, there's a tighter read between people shifting from analog to digital culture and then processes that are enabled by artificial intelligence and things of that nature. When we think about companies operationalizing digital transformation, it's really going back and redefining this idea around people, process, and technology in defining business value and changes that the companies want to make to their supply chain and greater business.

Abe: Peter, you bring up an interesting point and that's juxtaposing digital transformation with BPR, the business process redesign. Often you see a company go after a particular issue within their business process redesign as opposed to taking a look at the entire system like boiling the ocean. When you take a look at digital capabilities the companies are evaluating, how do they pick the right ones, given that we've got such a long supply chain for the organization? What gives them the essence of, this is the area that we need to approach with digital capabilities?

Peter: Great question, Abe. Again, I'm going to focus on what are leaders doing. I think leaders are looking at their supply chains from an end-to-end standpoint so from suppliers’ supplier to customers’ customer. First of all, is where do I need to apply digital capabilities within my supply chain. With the pressure and all the commitments that we see on ESG and CSR initiatives on net zero capabilities, I think that's just going to double down on expanding it, not just from supplier’ supplier, but supplier supplier supplier. Again, when we think about ethical requirements and all of those things.

The first thing is defining the scope of digital capability. I think the second one then is really looking at the flavors or the areas of where capabilities would add business value. If we think back to the SCOR model, we have plan, source, make, deliver return and enable. That serve the industry that Bob mentioned well over time as we think about, and that's basically I'm going to call it a linear hierarchical process model.

As we pivot it into this digital age, we needed a new tool set, the digital capabilities model that really thought about groups of capabilities that related to each other. Things like connected customer, intelligent supply, smart operations, synchronized planning, product development, dynamic fulfillment. I think companies are largely trying to sort out today, where do they get the biggest bang from a business value standpoint?

One of the lessons that we've learned from our SCOR transformation research is that so 90 projects across multiple industries, how a SCOR impacted their metrics. We know that from that research over a 14 year period of time, that planning is a strategic focus area that is the biggest impact in pre-metric categories: revenue, supply chain costs, and inventory terms.

Naturally, as we think about where would companies want to start from a digital capability standpoint, we see synchronized planning as a very common place to go. Everybody is striving towards, how do I redefine my S&OP, my integrated business planning process, what used to be three-layered chess is now with digital tools now six-layered chess. I think to answer directly, Abe, what we're observing is that synchronized planning is a safe bet specifically on sensing demand patterns.

Bob: Peter, I want to ask you a question about innovation. I'm going to ask you a question about innovation, but first, you used a term twice that I think it's actually good for us to explore here for a moment because it goes to something that Richard talked about last year. You used the phrase linear. We used to think of the supply chain and even like our suppliers, the tier three provide something to the tier two, which provides something to the tier one, which provides something to me, and then I go to a warehouse and so on, very linear. This idea of a digital supply network, which is part of the digital transformation, it's a different animal and it's not linear. Would you mind just take a minute to explain what we mean by that? Then I'll ask you what I was going to ask you about transformation and innovation.

Peter: When we think about process mapping, we think about inputs and outputs. You have a process in the middle, you have something that moves from left to right, process does something and then there's an output, and it goes to the next process step. Largely, technology in 10, 15, 20 years ago operated in that same thing. I'd run this module and then I would get an output and then I'd run this module and then I would run this module. Today's technology, all modules run at the same time.

When you start to think about digital capabilities and you have more tools that are doing more things. When we think about asynchronous, think about processes that are more circular and they're connected relationally to each other. One process may be connected to 12 other capabilities. Again, what I'm going to encourage the listening audience to do is, as we talk a little bit about how you get access to this one, it's a pretty intuitive model. As you click around on the six capabilities, you're going to be able to see these level two capabilities, and then how they relate to the other ones.

I think picture is always going to be a thousand words. I think the key point on that Bob, is that people need to have foundationally a SCOR linear supply chain, the foundational thing, and then as they start to think about, "Where am I going to invest in digital capabilities?" they need to pick the ones that are going to drive the most business value. Then as part of the prioritization and scoping, they're going to have to not just take that capability but all the things that are related to it. Yes, and this would be one of those times, Bob, where I wish I had a whiteboard.

Bob: We're audio, not video.

Peter: Yes, I know.

Bob: We have to expand our digital capabilities. Back to the question I was going to ask. I'm sure that ASCM experience this in your event, I experience this in my event. You and Abe and I and Helli and your team we toured the DHL Innovation Center. Digital transformation is becoming synonymous for innovations and many organizations like DHL, have a VP of innovation who's engaged in digital transformation and it's separate from day-to-day operations. How are ASCM’s corporate members addressing innovation and digital transformation?

Peter: Great question, Bob. I'm going to put two words together that are going to sound weird, and I'll talk a little bit about why I put them together. One of the things that we've observed is this idea around standardization fuels innovation. Sometimes people have a hard time connecting those two dots, but here's what I mean by that. If you think about doing a maturity assessment and I'll use supply chain for the moment, and you say, "Gosh, I'm a one, I want to be a five." What we're finding is standardized processes, using SCOR, for example, can get you from one to three.

What that allows you to do is to say, "Well, once I'm at a three and my supply chain is a test, it's in autopilot, it's being able to drive by itself." You can now then have enough time and enough mental capacity to start thinking about which of those 32 digital capabilities do I really want to invest in that would drive business value for my organization? Along with that, Bob, we know just from our own research that organizations are only using 30% of the technology they bought five years ago. A large part of digital transformation is just using what I have, using standardized process. There's latent return on investment just sitting there waiting to be had, which then allows me to then invest in the right capabilities to move ahead and drive competitive advantage.

When we think about innovation to me, standardization is part of that formula. That's part one to what I wanted to talk about. The other one is innovation is really a company-driven thing, not just a supply chain thing. Let me describe that. Let's just use corporate social responsibility and ESG commitments that are being made. Seemingly every day people are putting goals out there for 2030, 2040, 2050. To be able to meet some of those objectives, three things at least have to change from an innovation standpoint. The first is products.

As we think about R&D, and we think about how we're developing products today, how do we start thinking about developing products that are circular? Meaning they use waste streams to be able to produce the product and then they're able to then recycle that product, either through repair or other means into new products in the future. At some point, you're going to have to put a flag out there that says, here's when I'm going to start that whole process. That's more than just the supply chain. Obviously, it now includes how do I identify sources of supply to be able to help me with those kinds of innovative things or provide the materials that can support those kind of requirements.

The second one, which we see a lot is the idea around infrastructure, how do I make my headquarters building greener at net zero? How do I think about my factories? How do I think about my warehouses and those kind of things? How do I invest in infrastructure that meets this green point of view? In the supply chain, let's talk about the big one, that's transportation. In supply chain, you also have some of the other ethical things to consider.

How do I make sure that within my supply base, they are working towards the same end that I am from an organization standpoint? We see, in addition to these VPs of innovation, you also see a lot of chief sustainability of our officers. You've got the chief supply chain officer, the chief sustainability officer, and the head of R&D trying to figure out how am I going to put my company to the next level as we think about CSR? Long answer to your short question, Bob.

Abe: Peter, let me shift gears just a little bit here and talk about DCM. Give our audience a little flavor as to what we're doing with it and what it is at ASCM. How we view it.

Peter: Great. The first thing, all of you that are listening is as soon as we finish here, you'll go to the show notes and figure out how do you get an account and actually go look at the model. The DCM is built on two levels. Level one really is comprised of six major digital capabilities, as I mentioned earlier, connected customer, dynamic fulfillment, synchronized planning, intelligent supply, smart operations, and product development. If I click on one of those, you're going to see a series of level two capabilities for each one.

For example, within synchronized planning, you would see rapid demand supply matching. Within intelligence supply, you would see automated AP kind of things. The first big question people would have is, "What area do I want to think about?" Let's say it's synchronized planning and then within synchronized planning, which of those capabilities do I have today, and which of those capabilities are going to add a competitive advantage for me? People would use the DCM model to A, understand basic definitions. Again, we're proposing this as a global standard, it would help prioritize their capabilities, it would help scope the boundaries of the capabilities that I want.

I may think about rapid demand-supply matching as a capability but there are aspects of connected customer intelligence supply and smart operations that are also necessary to make that rapid demand and supply capability work. Then it also then has some tools that assess your baseline maturity and there are some examples that would define aspirational goals and maturity. There are personas that would describe what work looks like before and after the capabilities are implemented, and then it would also illustrate technology enablers. Again, which is a very tight lead now with the capabilities. Companies are using it today to help assess where they're at and then chart goals on where they want the maturities to end up.

Bob: Peter, when we were talking about the linear supply chain and DSN, one of the things that you said was, you want to have as a foundational linear supply chain, and then you build from there. When we talk about DCM, is it a replacement for SCOR, an extension of SCOR, or a compliment to SCOR? Can you give us some examples of how companies are using the two together?

Peter: Right. I think in its current state right now, I would describe it as a digital extension. We had a digital task force that our board initiated several years ago and one of the conclusions was SCOR was not helpful in prioritizing and defining digital capabilities. Rather than trying to carve up the whole elephant at once, we launched with Deloitte, the build of the digital capabilities model as an extension. Meaning that it's bi-directional, if I use SCOR, there's a link and a relationship to DCM and vice versa, that exists today.

As we vision this in the next three to five years, we see actually one model that incorporates best of both. SCOR is missing product development at the moment and the ability to connect to customers. Again, as part of our SCOR for 2030 project, we're actually looking to rectify that. That's how we would look at it today. Today, it's an extension, they both work forwards or backwards. In the future, we see one overall standard coming out of this one as it relates to SCOR.

As for the example, I guess the one example that I've used, we'd go back to the resilience research. One of the things that we observed in leaders, in our resilience effort in 2020 was when did they make the digital investments and how is it helping them actually achieve competitive advantage through the COVID pandemic? I'm going to use a particular global retailer that had operations everywhere.

They had started their own digital transformation in 2017. The first place that they started was inside of synchronized planning on how do I invest wisely in demand sensing? The idea in demand sensing that forces, how do I collect point of sale data? How do I collect my own promotional impact data? In addition to that, how do I start collecting social data and consumer data, things that are not just related to my particular product or my particular trade?

They started that investment. In November of 2019, just as again, think about, the milestone was February of 2020, which is when the US then said, "Hey, we've got to do something here." In 2019, they started to see demand shifts using this new capability in where consumers are buying their products. They were not buying them in stores in Asia anymore, in China, specifically, they were buying them online.

It wasn't just one of those things where it shifted a little bit, it was like, boom. As they started to ask the question, why did this shift occur? They started to get out of the social and what I would call consumer data, this whole idea around, "Gosh, we got a disease running around and we don't want to go into stores anymore, and yet we still want to buy the good." They were able to, in November, get a sense of that.

Then as part of their synchronized planning cycle in December, they were able to look at, "Okay, how do I rapidly match my supply?" Because again, largely, a large part of the inventory position to support store replenishment, how do I now start to think about using that inventory, to now replenish my e-commerce warehouses because again, at the end of the day, that's where the demand was shifting to so that I can continue to sell that.

They made those changes as part of their synchronized planning, their S&OP process in December, and they were able then to start positioning inventory properly. As they brought in new supplies, they were able to have them in the right place at the right time. Again, everybody had supply shots, so nobody escaped unscathed there. They were able then to have a higher average service level with fewer stock-outs, higher average service, and their revenue was not shocked like many folks.

They knew it was coming. They were able to maintain a higher average factor utilization because they were able to-- and lower transportation costs because they didn't have to reposition as much inventory as others who would not have known that. They were able then to take, I'm going to say, shelf space or more market share away from competitors because competitors, again, were floundering on or not known, and they didn't wake up until recognizing it in February.

They had almost a five month lead time on being able to respond to that. That's a more detailed example. Again, I want to think about this one. Those are investments that made it in 2017 and 2018. When we think about digital transformation, it's almost getting to be BPR line. The question that we're asking is what's next? What have we learned out of this pandemic from a resilience standpoint and where do we see leaders starting to invest next, automation, visibility, agility, things of that nature?

Abe: Peter, really fascinating. Last question for you. We're all excited about making this open access for individuals and companies. Can you give a sense to the listeners who's eligible and how can they access it?

Peter: If you're listening or eligible, and if you're not listening, you're eligible, so we'll leave that at the eligibility standpoint. Secondly, I think Bob had mentioned, they're going to put in the show notes, what we're asking you to do is to create an ASCM account, it’s not going to cost you anything. When you get access, then you're going to be able to click on the DCM model or the store model or both, and you're going to be able to use it, again, as a reference. You're going to be able to use it as part of a project.

We have gobs of training sessions that we're looking to introduce here as we get into the new year, so stay tuned for that. Those will be posted on the website as well. Don't hesitate, make this a Christmas or a holiday gift to you and your friends.

Abe: Really exceptional stuff, Peter. I think our hope is that individuals do gain the insight from the DSN and the DCM models and see how it impacts their organization. That is all the time that we have today. Special thanks to our guest, Peter Bolstorff. Finally, a special thanks to all of you for joining us for this episode of The Rebound. We hope that you'll be there for the next episode. For The Rebound, I'm Abe Eshkenazi.

Bob: I'm Bob Trebilcock.

Abe: All the best everyone. Thanks.

Bob: The Rebound is a joint production of the Association for Supply Chain Management and Supply Chain Management Review. For more information, be sure to visit ascm.org and scmr.com. We hope you'll join us again.

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